It seems as though every week, the public is forced to learn another one of Wall Street's strange names for a surefire deal that couldn't miss. But the reason we're learning about those strange names is because -- contrary to promises -- the can't miss deals are shutting down -- taking Wall Street's credibility down along with them.

The latest of these is auction rate securities (ARSs) -- a $330 billion market for long-term bonds that are supposed to pay lower rates because their interest rates are set through auctions. The New York Times reports that municipalities who issued ARSs are suffering because 1,000 of these auctions failed and instead of paying 3% interest rates, they have to pay 20%. And if that wasn't bad enough, the investment banks that oversee these auctions are refusing to let investors withdraw their money.

Which investment banks are imposing this pain? Goldman Sachs Group (NYSE: GS), Merrill Lynch (NYSE: MER), and Lehman Brothers Holdings (NYSE: LEH) and the problem with ARSs is not limited to municipalities entities such as the Port Authority of New York and New Jersey. Closed-end mutual funds, student loan companies and corporations also issue them.

Continue reading Auction Rate Securities: The latest $330 billion catastrophe

Auction Rate Securities: The latest $330 billion catastrophe originally appeared on BloggingStocks on Fri, 15 Feb 2008 09:05:00 EST. Please see our terms for use of feeds.

The Wall Street Journal [subscription required] reports that $4.26 billion in funds is leaving bank-loan mutual funds -- marking the 18th straight week in this cash exodus. This means that any hope for a revival in the private equity-driven M&A market that fueled stocks through the first half of 2007 is in even deeper trouble than many thought.

In so doing, the spreading credit contagion is forcing me to learn yet another acronym resulting from the securitization industry. This time, the new acronym is Collateralized Loan Obligations (CLOs), which are bundles of so-called leveraged loans -- themselves high-risk corporate loans used for leveraged buyouts whose average price fell to a record low of 86.28 cents on the dollar at the end of last week. There are an estimated $300 billion worth of CLOs on the market.

Why should you care? Well, over the weekend, the G7 -- a meeting of seven leading countries' finance ministers -- decided that the biggest issue in the global capital markets was the $400 billion in losses that the world's banks will need to take to clear their books of Collateralized Debt Obligations (CDOs) built from subprime mortgages. Along with that little problem is the need to recapitalize those banks once they take their hits.

Continue reading $4.3 billion leaving leveraged loans as credit contagion spreads

$4.3 billion leaving leveraged loans as credit contagion spreads originally appeared on BloggingStocks on Mon, 11 Feb 2008 09:00:00 EST. Please see our terms for use of feeds.

The New York Times [registration required] suggests that General Electric Company's (NYSE: GE) CNBC's Jim Cramer has had little effect on Fed Chair Ben Bernanke -- this despite his famous video rant in favor of cutting interest rates.

Cramer is used to having tantrums and getting his way. But his responsibility is limited to providing a unique mix of entertainment and stock touting. Bernanke, on the other hand, has a slightly bigger responsibility -- managing the first global financial panic of his 18-month tenure. To do that, he issued $62 billion of short-term government loans (known as repos) -- accepting mortgage backed securities (MBSs) as collateral -- in an effort to restore confidence to the markets.

Meanwhile Cramer is trying to get Bernanke to bail out his buddies at The Goldman Sachs Group (NYSE: GS), whose formerly eight-figure-bonus-worthy trades are now blowing up in their faces. Simply put, Cramer wants the Fed to grant Wall Street all the upside while shifting the costs of its mistakes onto society. But Bernanke does not want to play along.

Continue reading Cramer vs. Bernanke: interest rate faceoff

Cramer vs. Bernanke: interest rate faceoff originally appeared on BloggingStocks on Sat, 11 Aug 2007 16:15:00 EST. Please see our terms for use of feeds.